Hedge Fund Legend Ray Dalio: If You Think Markets Are Dramatic Now, Just Wait For 2020

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November 7, 2018

By Chloe Aiello and Alex Heath

Midterms may have spooked the markets in October, but billionaire hedge fund-owner and investing oracle Ray Dalio anticipates the most dramatic season is yet to come for the economy.

"If you thought this was drama, between now and the 2020 presidential election, how the economy works and how the Fed deals with monetary policy and how the markets behave will be very risky. And that will have a big, big impact not only in U.S. politics, but in the whole geopolitical situation around the world," said Dalio, the founder and co-chairman of Bridgewater Associates.

Speaking to Cheddar from the Web Summit conference in Lisbon, Portugal, Dalio explained the Midterm election's effect on the economy was "pretty much as expected."

Pre-election market jitters are characteristic of the Midterms, and this year was no exception. But the narrative shifted again on Wednesday: the markets were mostly placid as of 11:00 a.m. ET, even as election results continued to roll in.

In advance of Election Day, polling indicated Democrats would take the House, while Republicans would maintain their hold on the Senate ー which is essentially what happened.

After the results projected clear winners in the majority of contests, the markets stabilized on Wednesday morning; The S&P 500 (.SPX) and the Nasdaq Composite were up more than 1 percent in early morning trading and the Dow Jones Industrial Average (.DJI) was up 0.78 percent.

But come 2020, a potential change at the top of the White House could really rock the markets, according to Dalio.

"The real issue will be the next presidential election in two years," he said. "And the real question pertaining to that, as we're late in the economic cycle, is whether or not the central banks tightening monetary policy and other conditions will lead to a recession before that election."

With regards to China, a country that Dalio has studied closely during the formative years of its modern economic development, the investing maven doesn't see a clear end in sight for President Trump's escalating trade war.

“This is way beyond tariffs. This is way beyond trade, " he said. "We are now entering a new era in which there is real competition that’s geopolitical, economic. It’s much broader than trade. It has to do with ways of life even. That environment is going to be a difficult environment.”